Key Person Insurance for PartnershipsProtecting Partners & the Business

Key person insurance for partnerships is vital because partnerships face concentrated risk:

• Shared liability - In traditional partnerships, remaining partners may inherit increased personal liability
• Client relationships - Partners often have deep personal relationships with key clients who may leave if the partner dies
• Revenue concentration - Each partner typically generates a significant share of total revenue
• Debt obligations - Partnership debts may need to be repaid or restructured
• Buyout funding - Deceased partner's estate may be entitled to their partnership share

It is important to understand the difference between key person insurance and partner protection for partnerships:

Many partnerships need BOTH types of cover. Key person insurance protects against trading losses, while partner protection funds the transfer of ownership.

Key person insurance works slightly differently depending on partnership structure:

Traditional Partnerships

• The partnership itself takes out the policy
• Partners have unlimited liability, making protection more critical
• Premiums are a partnership expense

Limited Liability Partnerships (LLPs)

• The LLP takes out the policy as a corporate entity
• Members' liability is limited, but the business impact of losing a key member remains
• Premiums are treated as a business expense of the LLP

Limited Partnerships

• General partners (who have unlimited liability) are often the key people to insure
• Limited partners may also need cover if they contribute significantly to the business

Calculating cover for partnership key person insurance:

• Profit share - The partner's annual profit contribution, multiplied by 2-5 years
• Revenue at risk - Clients who might leave, estimated revenue loss over recovery period
• Partnership debts - Any loans or obligations that would need covering
• Recruitment cost - Finding and integrating a new partner can take 12-24 months

Use our calculator to estimate cover amounts. For professional partnerships (solicitors, accountants, etc.), cover amounts are often significant due to high partner earnings and client concentration.

Steps to set up key person insurance for your partnership:

1. Identify key partners - Those whose loss would most impact the firm financially
2. Calculate cover amounts - Based on profit contribution, debt, and replacement costs
3. Decide on cover type - Life, critical illness, or both
4. Partnership agreement - Ensure the partnership agreement allows the firm to take out insurance on partners
5. Get quotes - Compare providers for the best terms
6. Consider partner protection too - Alongside key person cover for complete protection

A specialist business protection adviser can help structure the arrangement correctly, particularly around trust arrangements and cross-option agreements.